Market Awaits FOMC, Wary of Rate Hike

Today, the Federal Open Market Committee (FOMC) interest rate decision is scheduled. Simultaneously, retail sales data and import/export price indices were released. Retail sales appeared stronger than expected, which could increase the likelihood of an interest rate hike ahead of the FOMC meeting.

While maintaining their outlook on corporate earnings, they anticipate a lower multiple. They believe that high bond yields could reduce the attractiveness of stock investments.

Oil prices briefly fell on news of a ceasefire between the U.S. and Houthi rebels, but the upside risk in the crude oil market remains high. We believe that a sustained decline in oil prices will only occur after actual resumption of crude oil shipments and recovery of maritime traffic are confirmed. Rather than reacting to short-term ceasefire news, it's necessary to monitor actual changes.

If an interest rate hike is decided, a short-term rate increase is inevitable. However, 10-year and 30-year bond yields are considered to have already priced in the hike. If 30-year yields do not fall, or if 10-year yields rise above 5.1% and stay there, it will be necessary to maintain a short position on the possibility of further rate hikes. While long-term yields typically fall when inflation is contained, the possibility that this trend may not materialize cannot be ruled out at present.

Meta plans to deploy its self-developed new AI chip in data centers in the first half of next year. This chip primarily focuses on optimizing inference performance. Therefore, it is not a complete replacement for Nvidia's GPUs, and learning costs will likely still depend on Nvidia. This analysis suggests it may not be a direct negative for Nvidia's stock but could be positive for memory companies.

This is interpreted as reflecting the market's expectation that bond prices will struggle to rise further. Therefore, even if the FOMC announces an interest rate hike, it is likely already priced into the market. There is even a possibility of a short squeeze occurring, leading to a temporary drop in bond yields.

The current bond market has both upside and downside limited, and it is likely to move within a certain range rather than experiencing drastic fluctuations.

The current market has low certainty about the FOMC outcome, leading to significant uncertainty. Therefore, maintaining a neutral position until the FOMC announcement and deciding whether to enter the market after observing the results is considered a prudent strategy.

The most important aspect to confirm at today's FOMC is whether there will be an interest rate hike. The probability of a rate hike is estimated at 60-70%. Additionally, the dot plot should be checked to ascertain the Fed members' projections for future rate hikes and their assessment of persistent inflation. Furthermore, if the Fed mentions additional bond purchases, this could act as a short-term positive for the market.

This is a risk management measure in case interest rates rise more sharply than market expectations. In such a situation, it is difficult to expect a short-term drop in interest rates, necessitating a shift to an aggressive short position.

The notion that diversification lowers returns is a common misconception. This idea stems from the regret of missing opportunities for high returns by 'all-in' investing in a specific asset. Even if you diversify investments across multiple strategies with the same expected return, the overall return remains constant. The core purpose of diversification is not to lower returns but to manage risk by reducing the maximum drawdown (MDD).

It is crucial to build a portfolio by combining assets with low correlation. Investing in highly correlated assets like Nasdaq and SK Hynix together reduces the diversification effect. Assets with near-zero or low correlation, such as bank stocks, political stocks of third countries, or utility stocks, can be considered. However, specific stock selection and strategy fall within the investor's own in-depth analysis and judgment.

A strategy where 1-2 out of 10 people can fail is not a good strategy. For an ordinary investor, not a legendary one, managing significant assets, such a strategy makes it difficult to withstand unpredictable drawdowns. The idea that growth-stock-focused investing is good for everyone can be risky.

During a past Tesla investment, when the stock price fell by 20-30%, I attempted to average down by borrowing money for additional purchases, but it eventually fell by 70%, resulting in significant losses. When investing with borrowed money, asset declines feel twice as severe, leading to greater psychological pressure. Margin calls and the risk of bankruptcy, where asset value falls below debt, can occur, so averaging down strategies must be approached cautiously. Based on this experience, the dangers of indiscriminate averaging down are emphasized.

Day trading is not recommended for individual investors who lack the same investment infrastructure as Wall Street. Momentum investing is not a simple solution, and it is crucial to establish one's own investment principles through direct experience and verification.

Asset allocation strategies should vary depending on an investor's retirement timeline. For those close to retirement, going all-in on high-risk assets (like TQQQ) is extremely dangerous. For example, a 59-year-old anticipating retirement next year could face a 50% asset loss within a year. Therefore, as one ages, it is wiser to shift portfolios towards stable assets, pursuing 20% or 10% returns rather than taking on excessive risk. One must consider realistic retirement fund management beyond simply tolerating losses.

Although its returns slightly deteriorated in August and September due to rising interest rates, it has generally shown good performance. It prioritizes structural reasons for a company's revenue growth rather than simple valuations. The AI strategy focuses on identifying investment opportunities by tracking a company's structural growth potential.

Understanding the structural reasons for rising sales (e.g., increased backlog due to HBM shortage) is essential. Simply looking at valuations or investing based on someone's recommendation is risky. It is crucial to critically assess negative factors like the emergence of competitors or changes in market conditions, and to verify the possibility of a company's monopolistic power weakening.